Newsroom

August 18, 2016

NCUA aims to finalize interest rate risk guidance in 4Q

NCUA hopes to finalize guidance on its interest-rate risk supervision component in the fourth quarter that will include a revised examiner guide, procedures workbook and answers to frequently asked questions, the agency's Larry Fazio said during a webinar Thursday.

NCUA said supervisory changes likely will not go into effect until January 2017.

Fazio, NCUA Director of Examination and Insurance, spoke during the agency's webinar on IRR supervision and adding an "S" to CAMEL with others from his office, including Owen Cole, director of the division of capital and credit markets, and Senior Capital Market Specialists Tom Fay, Rob Bruneau and John Nilles. NCUA Economist Scott Borger also presented during the webinar.

During the webinar, NCUA said a supervision update is necessary to address new IRR and derivatives rule requirements, enhance examiner guidance, reduce inconsistencies and identify outlier risk. The agency said key changes to IRR supervision include the examiner guidance and the risk-tolerance thresholds. The agency will conduct an IRR supervisory test, which would establish four risk categories – low, medium, high and extreme – and would shift its focus towards IRR outliers.

Regarding adding an "S" to CAMEL, NCUA said the new IRR supervisory rating will be incorporated into the existing scheme (part of "L" rating) for now. NCUA added that any future CAMELS rating methodology would be issued for public notice and comment and separate liquidity from market risk sensitivity.

NCUA staff briefed the NCUA Board on the recommendation to add an "S" rating for credit unions' sensitivity to market risk to the CAMEL Rating System during its open board meeting in June.